PETALING JAYA: Kenanga Investment Bank remains confident on Gamuda Bhd’s outlook despite news of the potential cancellation of the group’s Metro West project in Australia.
The counter experienced a significant sell-down yesterday, dropping as much as 7.5% before rebounding to close at 4.4% lower. About 37.4 million shares were traded following the news.
The research firm, however, remains optimistic and stated that yesterday’s sell-down of Gamuda’s shares presented a good buying opportunity for investors.
In a note today, Kenanga has maintained its “outperform” rating on Gamuda at RM4.30, with an unchanged target price of RM5.15.
In March last year, a consortium between Gamuda Australia and Laing O’Rourke was awarded the Western Tunnelling Package contract on the Sydney Metro West project by the New South Wales government in Australia.
The contract was valued at A$2.16 billion (RM6.6 billion), with an anticipated completion date set for 2026.
Negative impact limited
Kenanga said that the potential cancellation of the project would unlikely impact Gamuda’s tunnelling package since it is almost halfway (40%) complete, which makes it costly to scrap the project at this stage.
“At worst, should the package be terminated, it would reduce Gamuda’s FY2024 net profit by 8%,” said analyst Teh Kian Yeong.
“Assuming that the remaining 60% works cost around RM3.9 billion with an operating margin of 11%, the total profit contribution would be RM300 million over the next three years,” he further said.
“We believe the RM429 million loss in the market cap yesterday is unwarranted,” Teh added.
The research house, however, noted several risks that may hurt Gamuda’s outlook, such as the reduction in public infrastructure spending and delays in major public infrastructure works.
As at 4.04pm, Gamuda’s share price was up 2 sen or 0.47% to RM4.32, valuing the company at RM11.53 billion.